The Unitary Business Theory and New Limits on Taxing Nonresident Sole Proprietor

The Franchise Tax Board has pushed hard to tax nonresidents on amounts the FTB claims is California source income, often arguing their sole proprietorships qualify as unitary businesses subject to apportionment. On May 1, 2026, the California Court of Appeal rejected that theory in Garcia-Rojas v. Franchise Tax Board, holding that a single person engaged in one business activity cannot operate a unitary business. The decision dismantles the reasoning behind the OTA’s ruling in Appeal of Bindley and narrows the reach of the unitary business doctrine. The article breaks down the court’s analysis, what it means for nonresident taxpayers, how it may support claims for refund and be used as a defense to claims a nonresident owes California income tax.